The Pros and Cons of a Merchant Cash Advance

Having a regular cash flow is essential for any business. Working capital is also vital to business success. However, there will be times in any business when money is tight and sales are down. When this occurs, outside forms of funding may be required. One of the types of funding that should be considered is a merchant cash advance.

Merchant Cash Advance Benefits

One of the best things about a merchant cash advance is how quickly the money is available. Unlike other forms of financing, the application is simple and easy to fill out. Provide a few months of bank and credit card statements and you’re done. If you apply online and get approval, the money could be available in days.

In addition, there are no fixed monthly payments with a merchant cash advance. Instead, you typically pay a fixed percentage of the credit card receipts you get over the money. If sales are slow, there’s no need to worry about having to make a large payment. Since it’s percentage-based, it works with whatever sales you do have.

Merchant cash advances are also useful since you don’t need great credit to get one. This isn’t the case for securing financing through a small business loan at a bank. Instead of focusing on the past, lenders are looking to know about the future of the business when choosing to approve you.

You also do not need to put up collateral for a merchant cash advance. Your equipment and property are safe. With traditional loans, nonpayment could lead to the loss of your items and property. With a merchant cash advance, that’s not something you need to worry about even in the worst case.

Disadvantages of a Merchant Cash Advance

You should also know about the cons of taking out a merchant cash advance. It can be more expensive than other options. The annual percentage rate can be higher than you might expect from other forms of financing for a business. Make sure the numbers work for your company before choosing a merchant cash advance.

In addition, merchant cash advances are made to handle temporary shortages of cash. These advances aren’t meant to be for long-term needs. It’s a quick process to get cash in hand that you pay back through the credit card sales you make over several months.

Depending on the lender, you may have funds deducted as often as daily with a merchant cash advance. This can take some of your profits regularly, which means making less every day. However, this can also get the advance paid off more quickly than other financing options.

The Bottom Line

There are both pros and cons to choosing a merchant cash advance. If you decide this is the right option for you, make sure to choose a trustworthy provider with good terms. If you process lots of credit card transactions each day and need short-term financing, it could be to meet your needs.